2. Main elements of the physical models
Main elements of our physical models of the economic systems are shown schematically in Fig. 2.1. A large sphere covers a market subsystem or simply economy consisting of active market subjects: buyers who have financial resources and a desire to buy goods or commodities, and sellers who have goods or commodities and a desire to sell them. They are the buyers and sellers who form demand and supply in the market. Small dots inside the sphere denote buyers, big ones denote sellers. Cross-hatched area outside the sphere represents external environment including the state, society and other institutions. The whole economic system is located in some commodity-and-price space which will be discussed below. It is evident that all elements of the system influence each other: buyers compete with each other in the market for commodities; sellers compete with each other for buyers.
The same way buyers and sellers interact with each other thus influencing each other’s behavior. External environment influences all economic agents. In other words, all economic agents are influenced by external environment and interact with each other.
In order to develop a physical model of the economic system, it is necessary to learn to describe exactly in a mathematical way both movement (behavior) of each economic agent, i.e. buyers and sellers, and interaction with each other, and in the end to derive equations of motion which show dynamics or movement, or evolution of the system in time.
Fig. 2.1. Physical model scheme of an economic system: economy consisting of buyers (small dots) and sellers (big dots) which is under the influence of external environment beyond the economy (covered by the sphere).